One question I get asked all the time is “how do I teach my kids how to save money?” I’m not surprised this is a repeat inquiry, because as a parent, I know it’s an uphill battle. But you want to give your kids a solid financial foundation, and my answer to this question is generally two fold: First, they have to have access to money. Then, you have to show them how to set goals.

We’ve talked about the first before – I’m a big fan of allowances, and, if the kids are old enough, a part-time job. If the kids are younger, they can do extra chores around the house. The important thing is that they have a sense of autonomy, a purse of their own that they have to manage and make decisions about. Because if there is one thing I know for absolutely sure, it’s that kids are much less likely to blow their own money. They don’t have a problem blowing yours.

Once they have that cash, the goal-setting comes in. Here, the best way to approach that lesson:

Put the ball in their court. If kids do one thing really well, it’s want. So the next time they get a case of what I call “the wannas” – it’s been known to strike hard at the grocery store, even harder at the mall – talk to them about what the item costs and how they might buy it for themselves. Break it down for them, so they know exactly how many allowances or paychecks will go into purchasing that item. They may decide it’s not worth it, and that’s fine. Being able to make these choices is an important part of being a financially savvy adult. But if they still want it, talk to them about this next point – budgeting.

Give a crash course. Most of us don’t have unlimited resources. So when we want to buy something that isn’t already in the budget, we need to find the money for it. More often than not, that means taking money from somewhere else – maybe you go out to dinner twice this month, instead of weekly, so you can buy that new air conditioner or take that trip to the beach. This is a concept that kids can grasp: Talk to them about where they’re spending their money, then show them where they can cut back so they can put aside a little bit of cash each week or each pay period for their goal.

Make a plan. Once they know how much they can save each week, help them calculate how long it will be before they have enough money to buy the item they want. If it’s too long, they can go back to the drawing board: what else can they cut out so they can save more? And if they slip up, overspend, and set their plan back, let them feel the effect of that.

Stash the cash. If they’re younger, they can watch their money grow in a fun piggy bank. If they’re older, help them open a savings account where they can earn a little interest (I think 9 or 10 is about the right age for this – they’re old enough to “get” it at that point). Take the opportunity to explain the concept of interest, and show them when it accrues.

About Jean Chatzky

Jean Chatzky, the financial editor for NBC’s TODAY show, is an award-winning personal finance journalist, AARP’s personal finance ambassador, and a contributing editor for Fortune magazine. Jean is a best-selling author; her eighth and most recent book is Money Rules: The Simple Path to Lifelong Security. She believes knowing how to manage our money is one of the most important life skills for people at every age and has made it her mission to help simplify money matters, increasing financial literacy both now and for the future. In April 2013 Jean launched Jean Chatzky's Money School , a series of college-style, interactive online personal finance courses that give men and women across the country the opportunity to learn from and interact directly with her. Jean lives with her family in Westchester County, New York.

3 Responses to Make your kids save for something

Oh, mine are quite adept at blowing their own money, too, which is odd as we’re models of saving to them. But the moment they get a little saved, out come the questions, “Do I have enough to buy XYZ yet?” “No, you still have a couple of weeks to go.” A pause…then, “I don’t want that anymore, I want X,” which turns out to be some toy that they just happen to have enough saved for right then and there. So, in the interest of letting them learn from their financial mistakes, we allow them to get the item they have enough for then as opposed to making them save for whatever item they “almost” have enough for. Our next step is to meet them halfway, which is what my folks did with me. In other words tell them, “If you save up this much money, I’ll kick in the other half you need to actually get it.”

My kids are all grown now and making good salaries. They are awesome with their money and “pay themselves first” each paycheck. What we taught them was to always save first and spend last.(pay your savings account as soon as you get your paycheck.) How did we teach this?
When they were in their first part time jobs during high school I showed them how to figure out approximately what they might make each month. We also did a simple budget to find out what they might need to spend that month on gas, clothes, pizza etc. Once they had a realistic figure for spending they quickly caught onto the habit of putting difference in the savings account and to save up for those really special items. My daughter did it a very simple way by figuring out what she needed for each month, kept only that amount in her checking account and used online banking to always transfer any extra to her savings each time she got paid. This continued even through the college years. They both learned to save instead of spend, plan instead of having regrets, and that you really don’t need all that little “junk”, fast foods,pop,candy, and 10 pairs of shoes… compared to saving up for a really nice car or piece of furniture. It worked for mine and they still save for the really special stuff instead of wasting money daily on junk.

My 9 year old now earns a “paycheck” and is paid every Sunday. We have a list of chores on a chart along with the amount he can earn. The more chores he helps with (and without us asking) the more he can earn on his paycheck. On Sunday, he adds up all of his earning and writes down his total for the week. It’s working very well! We also have the rule of “stash half” when he receives money from relatives/birthdays/etc. That way he can still buy himself a special treat.

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